Trai call drop norms to hurt telcos' earnings by 5%: BofA-ML

Terming the telecom watchdog's policy to compensate users for call drops difficult to implement, Bank of America Merill Lynch today said it expects a hit of up to 5 per cent in the pre-tax profits for listed majors Bharti and Idea Cellular.PTI | October 20, 2015, 19:37 IST

MUMBAI: Terming the telecom watchdog's policy to compensate users for call drops difficult to implement, Bank of America Merill Lynch today said it expects a hit of up to 5 per cent in the pre-tax profits for listed majors Bharti and Idea Cellular.

"We consider this regulation as hard to implement in the current form and expect telcos to contest this ruling. However, we think the worst case impact could be 4-5 per cent of EBITDA for Bharti/Idea," the American brokerage said in a statement.

It feared that telcos may pay more than they earn in a call as a bulk of the prepaid customers are in the per second billing plans.

Under the norms announced by Telecom Regulatory Authority of India (TRAI) last week, mobile users will get a compensation of Re 1 for every dropped call from January 1.

Telecom operators have cried foul saying the new rules can cost them nearly Rs 150 crore a day.

BofA-ML pointed out that under the licence requirement, a telco is not supposed to give 100 per cent network coverage which implies that call drops will happen.

It also said that the provision to compensate if call drop happens due to calling party's network and not receiving party's network is an issue.

"In our view, it is difficult for the regulator to the exact call drops and definition of the call drop may be different from an operator perspective and consumer perspective," it said.

Sponsored Stories

Subscribe to our Newsletters

After PSU banks, the government is likely to infuse capital in two chronically ill telecom PSUs BSNL and MTNL, and the Union Cabinet is likely to take a decision on 4G spectrum allocation to them by the third week of the current month after DoT places the note before it for consideration.

At a high-level meeting at the PMO late Tuesday, it was also decided that the two telcos will frame a Voluntary Retirement Scheme (VRS) to reduce their employee strength, which will be followed by a reduction in the retirement age to 58.